Upcoming Issue Highlights
Home Subscribe Advertise Sourcebook Free Product Info Home

Operating Your Business in the Time of COVID-19

CapsCanada
 
K2VITAL®
Operating Business Operating Business

As we move past the July 4 holiday into the “dog days of summer” with no signs of abatement in the rate of infection and hospitalizations caused by COVID-19, business owners are faced with a number of challenges maintaining effective operations. Some of these challenges (keeping your workforce safe) are new, some are old with new twists (protecting against cyber criminals) and all warrant your attention. Understanding these threats and developing a plan to protect your business from each of them and others is an essential step to allowing your operations to continue effectively.

Some of the Old—Regulatory/Claims

Both FDA (U.S. Food and Drug Administration) and FTC (Federal Trade Commission) have adopted what amounts to a “zero tolerance” policy for any dietary supplement making direct or implied claims that it can be useful to treat, cure, prevent or mitigate COVID-19. From March 6, 2020 through July 1, the agencies issued 65 joint warning letters advising companies that they are making impermissible COVID-19-related claims and giving them 48 hours to provide a substantive response describing the remedial action that they have taken to address the situation. The FTC has sent over an additional 100 warning letters on its own to companies marketing dietary supplements and other products, plus another 16 warnings to companies for COVID-19-related robo-call scams.

There have been a variety of news stories from reputable outlets that discuss the potential benefits of various dietary supplements in treating or preventing COVID-19. Whether or not any of these reported benefits are ever proven true, it is critical that companies marketing products do not make any express or even implied COVID-19 benefit claims. For example, while it is certainly acceptable to promote the general benefits of immune-supporting dietary supplements, marketing them with store signs promoting benefits “in this time of crisis” could be seen as implying a benefit against COVID-19, which would be illegal. And, it is not just a warning from FDA and FTC. Advertising with pictures depicting random viruses, posting testimonials from customers relating to COVID-19 or linking to social media posts discussing COVID-19 may cause more than just regulatory response.

Companies and individuals who do not take this issue seriously risk harsh action by the United States Department of Justice. For example, on June 1, the United States District Court for the Western District of Texas issued a temporary restraining order against Fort Davis, TX resident Marc “White Eagle” Travalino, requiring that he immediately stop selling product with claims that they “are proven to work and destroy” coronavirus when, in fact, there are no drugs or other therapeutics that have been demonstrated to cure or prevent COVID-19. The order effectively closed Travalino’s business and shut down his website pending further investigation by the FBI (Federal Bureau of Investigation) and the FDA Office of Criminal Investigation. As another example, on April 16, Dr. Jennings Ryan Staley, a licensed physician and the operator of Skinny Beach Med Spa in San Diego, CA, was charged with mail fraud in connection with the sale of what he described as a “100 percent” cure for COVID-19 that he said would render customers immune to the virus for at least six weeks. Staley faces up to 20 years in prison.

Cyber

On June 9, the Beazley Group, a specialty insurer affiliated with Lloyd’s Underwriters, issued a pointed reminder that as we continue to fight the global pandemic of COVID-19, the cyber pandemic of ransomware continues. According to Beazley’s Breach Response Services group, ransomware incidents in the first quarter of 2020 increased by 25 percent compared to Q4 2019. While no industry was immune, the manufacturing sector saw a startling increase of 156 percent quarter over quarter.

Beazley’s report emphasizes that it has seen an acceleration in reports of phishing incidents seeking to prey on a frightened populace during this time of global pandemic. Research from security awareness training company KnowBe4 has identified a broad range of COVID-19-related scams including social media posts, smishing (text message phishing) and email phishing. Cybercriminals are known to seek to take advantage of political or social instability, and the pandemic has created a landscape ripe with opportunities to exploit people’s insecurities and uncertainties.

KnowBe4 specifically highlighted scams relating to COVID-19-related testing and, to a greater degree, scams related to COVID-19 financial relief. The typical scam offers assistance in obtaining loans or direct relief payments, which leads to a request for bank account or other personal information. The scam email asks recipients to download a file that will implant ransomware into the victim’s computer or network. Given the current economic pressure facing many companies and individuals, it is unsurprising that these scams have been so successful. This information should serve as stark reminder to all companies that, in these uncertain times, the need for increased cybersecurity vigilance cannot be understated. Every company should be working with their counsel and consultants to ensure that they are taking proper care, including employee training and systems reviews, to protect their network security.

Insurance (Business Interruption)

Almost every company carries business interruption insurance designed to compensate for income lost following a business shutdown due to a need to repair physical damage rather than the cost of the actual repairs (after a hurricane, for example). Many insurance policies contain a requirement for physical damage to property to allow for a claim to be considered covered. Policies should also specifically list the types of events that are covered. Events that are not listed on, or not described in, the policy are typically not covered. It is important to review the policy exclusions, coverage limits, and applicable deductibles.

It is unlikely that a current business interruption policy has contemplated the coronavirus specifically. However, you should check to see if your policy has an exclusion that would disable coverage for an incident triggered by an epidemic or pandemic, which might apply to COVID-19 crisis. Even if you are unable to operate your business because your employees stay home out of fear of COVID-19, since most policies require physical damage, it is unlikely that you would have a covered claim.

At the present time, there are more than 100 cases filed in Federal District Court against insurance companies who have declined coverage under business interruption policies stating that COVID-19 related losses are, in fact, not caused by physical damage. The suits involve a variety of businesses including restaurants, taverns, dental practices, day care centers and hair salons across the U.S. They generally allege that a civil authority, either a county or state official, ordered the business to cease normal operations to contain the spread of COVID-19 and that potential COVID-19 contamination constitutes physical damage or loss, which is either expressly covered by the policy or is not expressly excluded by the policy.

This argument was rejected in late June by the court in Gavrilides Management Co. LLC v. Michigan Insurance Co., case number 20-258-CB-C30, in the Circuit Court of the County of Ingham, MI. While it is limited to application of Michigan law to the question, this is the first decision to expressly consider whether COVID-19 can be considered “physical damage” under business interruption policies.

Some of the New—COVID-19 Safety

As companies seek to continue manufacturing, distribution and/or retail operations running during the COVID outbreak, it is imperative that they take steps to protect their employees. This can include establishing protocols for health checks, social distancing, closing of company cafeterias, providing PPE (personal protective equipment—including facemasks, face shields and gloves) and thoroughly reviewing all company policies to ensure that you are not exposing your employees to unnecessary risk of contracting COVID-19. Other considerations should include sanitation protocols for your physical plant including disinfecting all contact surfaces with special attention to high traffic areas and restrooms. Excellent guidance on this is available on the FDA and CDC (Centers for Disease Control and Prevention) websites.

Failure to take these kinds of basic measures could potentially expose your company to claims by employees who become sick. This was the case for a McDonald’s restaurant in Oakland, CA that has been sued by five employees who claim that they were not properly warned of the highly contagious nature of the virus and forced to work in tight quarters with other employees who were not using PPE. The suit further alleges that employees were not told of the importance of PPE and that the facemasks provided by management were made out of unused dog diapers or coffee filters. Moreover, it is alleged that management refused to close the restaurant for proper cleaning and disinfection after several employees tested positive for COVID-19 and the employee requests for sick leave because of fear of the virus were denied.

This suit lays out a basic “what not to do” list for companies seeking to maintain operations during the pandemic and provides an important reminder to review all policies and practices that could impact the safety of employees.

Employee Releases

Even companies that are doing everything possible to protect their workforce during business operations might think that it is a good idea to have their employees sign a release absolving the employer of any liability from COVID-19-related matters. In fact, may be a bad idea.

Most states require employees to seek compensation under workers’ compensation laws rather than through claims directly against the employer. These claims still come with a cost to the employer, so it may be tempting to request employees to sign releases. However, even if employees were to sign, it is unlikely that it would be enforceable if it were ever challenged in court. To be effective, any such release would have to survive review by skeptical judges applying laws that often outright forbid liability waivers against employers, especially when it comes to workers’ compensation claims.

This type of document can provide employees’ attorneys “evidence” allowing them to argue that the employer is shirking its duty to provide a safe workplace. There is also the possibility that employers will likely hurt morale by asking workers to give up their protections and may face unfair termination claims if they fire workers for refusing to sign waivers.

Any company considering use of any form of waiver or limitation of liability in cases involving exposure to COVID-19 should pause and consult with counsel in order to properly assess the risks involved in such a course of action.

COVID-19 Discrimination

Under most state laws, an employer can terminate an employee for almost any reason, or no reason at all in the absence or an employment contract that provides otherwise. The only exceptions involve terminations that violate a law, such as an anti-discrimination law, or public policy. An employer thus can terminate or furlough an employee due to financial pressures caused by the COVID-19 outbreak.

On the other hand, federal, state, and local laws protect employees from a wide range of discriminatory behavior. For example, Title VII of the Civil Rights Act is a federal law that prohibits discrimination based on protected traits such as race, color, national origin, gender and religion. State and local laws may provide broader protections.

Certain types of discrimination and harassment have been on the increase during the COVID-19 outbreak. People of Asian heritage, especially the Chinese, have been blamed for creating and spreading the virus. This has resulted in hate crimes against Asians and Asian-Americans, as well as adverse actions in some workplaces. Employers should be aware that they may be liable for discrimination or harassment against their Asian or Asian-American employees. They should be alert to signs of discrimination or harassment, while Asian and Asian-American employees should know that the law protects them.

It is vitally important that business owners with any concerns about any issues involving potential or actual discrimination work with counsel to navigate this very troubling area.

Conclusion

This is by no means a complete list of challenges that must be addressed to maximize chances of operating successfully as we move through the second half of 2020. Every business owner should assess their specific operations in detail and develop a comprehensive plan considering their specific legal, regulatory and technical needs. Consultation with counsel can be an invaluable part of this review, helping ensure that the big picture concerns are covered and that your plans are organized and implemented in a logical, centralized manner designed to minimize risks in this extremely challenging period. NIE

Marc S. Ullman represents clients in matters relating to all aspects of U.S. Food and Drug Administration and Drug Enforcement Administration matters, regulatory issues, Federal Trade Commission proceedings and litigation. He practiced with one of New York’s leading white collar criminal defense firms for 10 years, where he represented clients in both federal and state prosecutions, as well as numerous related civil matters and other litigations. He can be reached at marc.ullman@rivkin.com.

K2VITAL®
 
Albion Minerals®